Byline: IAN LOWES
FINANCIAL services industry figures show that there has been a massive surge in the numbers of people buying annuities in the past few months. One trading platform noted a 90% rise in the number of annuities being bought compared with this time last year.
Why is there such a difference? The obvious reason is the imminent change to the rules governing how life insurers' make their annuity payments. On December 21 an EU directive comes into force that stops insurers using gender as a factor in the pricing of annuities.
At the moment insurers tend to pay a higher single life annuity rate for a male than for a female of the same age. This is because the industry expects females to live longer than males, which means the same amount of money has to work harder and for longer.
The EU directive will equalise annuity rates between men and women. No one knows as yet how this will play out but surveys among industry practitioners and our own view is that the most likely outcome will be that new annuities from the end of 2012 will give a modest increase in income rates to females but a proportionately larger reduction in male income rates.
Not surprisingly, many more people, males in particular, have taken the decision to buy their annuity now rather than after December 21 when the rates could be significantly different.
For anyone still deciding, there are several factors to consider.
Recent industry reports show that standard annuity rates fell by 7% between June and September this year.
Figures at October 22 show the best rate for a man aged 60 is just above PS5,100 a year for every PS100,000 invested. Not too long ago that was closer to PS6,000.
Buying an annuity is a one-off purchase - you cannot sell or exchange it later down the line as it is designed to give you an income for life. Therefore, buying the right type of annuity for your particular circumstances is vitally important.
There are many different types of annuity and some, like impaired life or enhanced annuities, can pay out at a higher rate than others based on health. For example, anyone who has a health condition or who smokes could achieve a higher annual rate of payment.
While enhanced annuity rates have also fallen over the past few months, around 5% between June and September, the best rate at October 22 for a single life male was PS6,099, which highlights the difference. It is essential to shop around for the best rate and type of annuity.
It is likely your pension provider will offer its own annuity to you as you near retirement. This may be a good rate but it may not - rates between popular annuity providers can differ by up to 20%.
Financial websites can have a restricted panel of annuity providers or only show one type of annuity. …